Self-Regulatory Organizations; the NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, To Modify Routing of Orders From NASDAQ Options Market to an Affiliate Exchange, 37074-37076 [E9-17767]
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37074
Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60354; File No. SR–
NASDAQ–2009–065]
Self-Regulatory Organizations; the
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2 Thereto, To
Modify Routing of Orders From
NASDAQ Options Market to an Affiliate
Exchange
July 21, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 29,
2009, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by Nasdaq. On July
17, 2009, Nasdaq filed Amendment No.
1 to the proposed rule change. On July
17, 2009, Nasdaq filed Amendment No.
2 to the proposed rule change.3 Nasdaq
has designated the proposed rule change
as constituting a non-controversial rule
change under Rule 19b–4(f)(6) under the
Act,4 which renders the proposal
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to amend Chapter
VI, Sections 1(e)(7) and 11(b) of the
Rules of the NASDAQ Options Market
(‘‘NOM’’) to modify the restriction on
routing of certain orders to a facility of
an exchange that is an affiliate of NOM.
The text of the proposed rule change
is below. Proposed new language is
italicized; proposed deletions are in
brackets.
Options Rules
Chapter VI
*
*
jlentini on DSKJ8SOYB1PROD with NOTICES
Sec. 1
Trading System
*
*
The following definitions apply to
Chapter VI for the trading of options
listed on NOM.
(a)–(d) No change.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 In Amendment Nos. 1 and 2, Nasdaq made
minor non-substantive corrections to the rule text.
4 17 CFR 240.19b–4(f)(6).
2 17
19:02 Jul 24, 2009
Sec. 11 Order Routing
(a) No change.
(b) For Non-System securities, the
order routing process shall be available
to Participants from 9:30 a.m. Eastern
Time until market close and shall route
orders based on the participant’s
instructions. Notwithstanding the
foregoing, the order routing process will
not be available to route Non-System
Securities to a facility of an exchange
that is an affiliate of Nasdaq other than
the Boston Options Exchange.
(c)–(e) No change.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. Nasdaq has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
*
Definitions
VerDate Nov<24>2008
(e) The term ‘‘Order Type’’ shall mean
the unique processing prescribed for
designated orders that are eligible for
entry into the System, and shall include:
(1)–(6) No change.
(7) ‘‘Exchange Direct Orders’’ are
orders that are directed to an exchange
other than NOM as directed by the
entering party without checking the
NOM book. If unexecuted, the order (or
unexecuted portion thereof) shall be
returned to the entering party. This
order type may only be used for orders
with time-in-force parameters of IOC.
Directed Orders may not be directed
to a facility of an exchange that is an
affiliate of Nasdaq other than the Boston
Options Exchange.
(f)–(h) No change.
Jkt 217001
a. Background
The NASDAQ OMX Group, Inc.
(‘‘NASDAQ OMX’’), a Delaware
corporation, acquired the Boston Stock
Exchange (‘‘BSE’’) in August 2008. Prior
to the acquisition, BSE owned a 21.87%
interest in Boston Options Exchange
Group, LLC, the operator of the Boston
Options Exchange facility (‘‘BOX’’).
Boston Options Exchange Regulation,
LLC (‘‘BOXR’’) was a wholly-owned
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
subsidiary of BSE, to which BSE was
delegated, pursuant to a delegation plan,
certain self-regulatory responsibilities
related to BOX.
In connection with the closing of the
acquisition by NASDAQ OMX, BSE
transferred its interest in Boston
Options Exchange Group to MX US, a
wholly-owned subsidiary of the
Montreal Exchange Inc. NASDAQ OMX
renamed BSE as NASDAQ OMX BX,
Inc. (‘‘BX’’) and relaunched its equity
trading market as the NASDAQ OMX
BX Equities Market in January 2009.
Although BX no longer holds an
ownership interest in Boston Options
Exchange Group, it continues to hold
self-regulatory obligations with respect
to BOX, a facility of BX. BX, together
with BOXR, retains regulatory control
over BOX and BX, as the SRO, remains
responsible for ensuring compliance
with the federal securities laws and all
applicable rules and regulations.
NASDAQ OMX also currently
indirectly owns NASDAQ Options
Services, LLC (‘‘NOS’’ or the ‘‘Routing
Facility’’), a registered broker-dealer and
a BOX market participant. Thus, NOS is
deemed an affiliate of BX, BOX and
BOXR.
b. Affiliation and Order Routing
Nasdaq is proposing that NOS be
permitted to route Exchange Direct
Orders in System Securities 5 to BOX
without checking the NOM book prior
to routing. Exchange Direct Orders are
orders that route directly to other
options markets on an immediate-or
cancel basis without first checking the
NOM book for liquidity.6 In addition,
the proposed rule change would permit
the routing by NOS of orders (including
Exchange Direct Orders) in Non-System
Securities from NOM to BOX.
NOS is the approved outbound
routing facility of Nasdaq for NOM.
Under NOM Rule Chapter VI, Section
11: (1) NOM routes orders in options via
NOS, which serves as the sole ‘‘Routing
Facility’’ of NOM; (2) the sole function
of the Routing Facility is to route orders
in options to away markets pursuant to
NOM rules, solely on behalf of NOM; (3)
NOS is a member of an unaffiliated selfregulatory organization, which is the
designated examining authority for the
broker-dealer; (4) the Routing Facility is
subject to regulation as a facility of
Nasdaq, including the requirement to
file proposed rule changes under
Section 19 of the Act; (5) NOM must
establish and maintain procedures and
5 Pursuant to Chapter VI, Section 1(b), ‘‘System
Securities’’ are all options that are currently trading
on NOM pursuant to Chapter IV of the NOM rules.
All other options are ‘‘Non-System Securities.’’
6 Chapter VI, Section (1)(e)(7) of the NOM Rules.
E:\FR\FM\27JYN1.SGM
27JYN1
Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices
internal controls reasonably designed to
adequately restrict the flow of
confidential and proprietary
information between Nasdaq and its
facilities (including the Routing
Facility), and any other entity; and (6)
the books, records, premises, officers,
directors, agents, and employees of the
Routing Facility, as a facility of Nasdaq,
shall be deemed to be the books,
records, premises, officers, directors,
agents, and employees of Nasdaq for
purposes of and subject to oversight
pursuant to the Act, and the books and
records of the Routing Facility, as a
facility of Nasdaq, shall be subject at all
times to inspection and copying by
Nasdaq and the Commission.
The Commission has approved NOS’s
affiliation with BX subject to the
conditions that: (1) NOS remains a
facility of Nasdaq; (2) use of NOS’s
routing function by Nasdaq members
continues to be optional 7 and (3) NOS
does not provide routing of orders in
options from NOM to BX or any trading
facilities thereof, unless such orders first
attempt to access any liquidity on the
NOM book.8
In order to modify the conditions
noted above regarding the operation of
NOS and allow NOS to route Exchange
Direct Orders directly to BOX, Nasdaq is
proposing to amend the restriction in
Chapter VI, Section (1)(e)(7) of the NOM
Rules that prohibit the routing of
Exchange Direct Orders to a facility of
an exchange that is an affiliate of
Nasdaq. Under the proposed rule
change, an Options Participant could
enter an order into NOM designated as
an ‘‘Exchange Direct Order’’ with
instructions to route that order directly
to BOX without first checking the NOM
book.
In addition, Nasdaq is proposing to
amend Chapter VI, Section 11(b) of the
NOM Rules to permit the routing of
orders in Non-System Securities via
NOS from NOM to BOX. As a result,
orders in Non-System Securities that are
routed to away markets under normal
procedures could be routed to BOX, as
well as those that are entered as
Exchange Direct Orders with
instructions to route directly to BOX.
jlentini on DSKJ8SOYB1PROD with NOTICES
7 Because
only Nasdaq members who are Options
Participants may enter orders into NOM, it also
follows that routing by NOS is available only to
Nasdaq members who are Options Participants.
Pursuant to Chapter I, Section 1(a)(40) of the NOM
Rules, the term ‘‘Options Participant’’ means a firm,
or organization that is registered with Nasdaq for
purposes of participating in options trading on
NOM as a ‘‘Nasdaq Options Order Entry Firm’’ or
‘‘Nasdaq Options Market Maker’’.
8 See Securities Exchange Act Release No. 58324
(August 7, 2008), 73 FR 46936 (August 12, 2008)
(SR–BSE–2008–02; SR–BSE–2008–23; SR–BSE–
2008–25; SR–BSECC–2008–01).
VerDate Nov<24>2008
19:02 Jul 24, 2009
Jkt 217001
Other exchanges previously have
adopted rules that permit exchanges to
accept routing of inbound orders from
affiliates, subject to certain limitations
and conditions intended to address the
Commission’s concerns regarding
affiliation.9 In the orders approving
these rule changes, the Commission
noted its concerns about potential
informational advantages and conflicts
of interest between an exchange’s selfregulatory obligations and its
commercial interest when the exchange
is affiliated with one of its members, but
determined that the proposed
limitations and conditions were
sufficient to mitigate its concerns.
With respect to concerns identified by
the Commission regarding the potential
for informational advantages favoring
`
NOS vis-a-vis other non-affiliated BOX
market participants, these concerns are
addressed by existing NOM Rule
Chapter VI, Section 11(e) which requires
NOS to establish and maintain
procedures and internal controls
reasonably designed to adequately
restrict the flow of confidential and
proprietary information between Nasdaq
and its facilities (including NOS) and
any other entity.
In addition, BX is proposing a rule
change and certain undertakings
intended to manage the flow of
confidential and proprietary
information between NOS and BOX and
to minimize potential conflicts of
interest.10
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,11 in
general, and with Section 6(b)(5) of the
Act,12 in particular, in that the proposal
is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
9 See Securities Exchange Act Release Nos. 59153
(December 23, 2008), 73 FR 80485 (December 31,
2008) (SR–NASDAQ–2008–098); 59154 (December
23, 2008), 73 FR 80468 (December 31, 2008) (SR–
BSE–2008–48); 59010 (November 24, 2008), 73 FR
73373 (December 2, 2008) (SR–NYSEArca–2008–
130); 58681 (September 29, 2008), 73 FR 58285
(October 6, 2008) (SR–NYSEArca–2008–90); 58680
(September 29, 2008), 73 FR 58283 (October 6,
2008) (SR–NYSE–2008–76); 58673 (September 29,
2008), 73 FR 57707 (October 3, 2008) (SR–Amex–
2008–62) (collectively, the ‘‘Affiliation Orders’’).
10 See SR–BX–2009–35.
11 15 U.S.C. 78f.
12 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
37075
and a national market system, and, in
general, to protect investors and the
public interest. The proposed rule
change would permit routing of
Exchange Direct Orders from NOM to
BOX through NOS while minimizing
the potential for conflicts of interest and
informational advantages involved
where a broker-dealer is affiliated with
an exchange facility to which it is
routing orders.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 13 and Rule 19b–4(f)(6) 14
thereunder in that it effects a change
that: (i) Does not significantly affect the
protection of investors or the public
interest; (ii) does not impose any
significant burden on competition; and
(iii) by its terms, does not become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest.
In its recent guidance on the proposed
rules of Self-Regulatory Organizations
(‘‘SROs’’),15 the Commission concluded
that filings based on the rules of another
SRO already approved by the
Commission are eligible for immediate
effectiveness under Rule 19b–4(f)(6).
The Commission noted that ‘‘a proposed
rule change appropriately may be filed
as an immediately effective rule so long
as it is based on and similar to another
SRO’s rule and each policy issue raised
by the proposed rule (i) has been
considered previously by the
Commission when the Commission
approved another exchange’s rule (that
was subject to notice and comment),
and (ii) the rule change resolves such
policy issue in a manner consistent with
13 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
15 Securities Exchange Act Release No. 58092
(July 3, 2008), 73 FR 40144 (July 11, 2008).
14 17
E:\FR\FM\27JYN1.SGM
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37076
Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices
such prior approval.’’ 16 Nasdaq believes
the proposed rule change is ‘‘based on
and similar to’’ the rule changes
recently approved in the Affiliation
Orders and furthers efforts to effectively
address the concerns previously
identified by the Commission regarding
the potential for conflicts of interest and
informational advantages when an
exchange is affiliated with one of its
market participants.17
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.18
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549 on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of the filing also will be available
for inspection and copying at the
principal office of Nasdaq. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2009–065 and
should be submitted on or before
August 17, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–17767 Filed 7–24–09; 8:45 am]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2009–065 on the
subject line.
BILLING CODE 8010–01–P
Paper Comments
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Order
Granting Approval of Proposed Rule
Change Relating to the Rejection of
Undisplayed Odd-Lot Orders From the
Exchange’s Matching System
jlentini on DSKJ8SOYB1PROD with NOTICES
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2009–065. This
file number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
16 Id.
at 40149.
the Affiliation Orders, supra note 8.
18 For purposes of calculating the 60-day period
within which the Commission may summarily
abrogate the proposed rule change under Section
19(b)(3)(C) of the Act, the Commission considers
the period to commence on July 17, 2009, the date
on which Nasdaq submitted Amendment No. 2. See
15 U.S.C. 78s(b)(3)(C).
17 See
VerDate Nov<24>2008
19:02 Jul 24, 2009
Jkt 217001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60353; File No. SR–CHX–
2009–02]
July 21, 2009.
On June 2, 2009, the Chicago Stock
Exchange, Inc. (‘‘CHX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to:
(1) Allow Exchange customers to specify
whether odd-lot orders and unexecuted
odd-lot remainders, that are not able to
be immediately displayed, should
remain in, or be rejected from, the
Exchange’s Matching System, and (2)
add a generic routing rule to clarify how
any orders that are rejected from the
Exchange’s Matching System, and
routed away according to Participant
instructions, will be handled. The
PO 00000
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
Frm 00080
Fmt 4703
Sfmt 4703
proposed rule change was published for
comment in the Federal Register on
June 17, 2009.3 The Commission
received no comments on the proposed
rule change. This order approves the
proposed rule change.
The Exchange proposes to amend
CHX Article 20, Rule 8 to allow
Exchange Participants to specify
whether odd-lot orders and unexecuted
odd-lot remainders, that are not able to
be immediately displayed, should
remain in, or be rejected from, the
Exchange’s Matching System. This
preference could be set by the
Participant on both a default and order
by order basis. Orders remaining in the
Matching System will continue to be
ranked at the price and time at which
they were originally received. Orders
that are rejected from the Matching
System shall either be sent back to the
order sender or be routed to another
destination according to each
Participant’s instructions 4 or, if
designated ‘‘do not route,’’
automatically cancelled. The Exchange
also proposes that Participants that elect
to have orders routed to another
destination pursuant to this rule, or
pursuant to Article 20, Rule 5
(‘‘Prevention of Trade-throughs’’), agree
to be bound by such transactions.
In addition, the Exchange proposes to
add a generic routing rule to clarify how
any orders that are rejected from the
Exchange’s Matching System, and
routed away according to Participant
instructions, will be handled. The use of
routing services is optional and is
available only to exchange Participants.
In such cases, the Participant will be
responsible for ensuring that it has a
relationship with its chosen
destinations to permit the requested
access. The Exchange shall not have
responsibility for the handling of the
order by the other destination, but will
report any execution or cancellation of
the order by the other destination to the
Participant that submitted the order,
will notify the other venue of any
cancellations or changes to the order
submitted by the order-sending
Participant and, if requested by the
Participant and its chosen destination,
will flip any executions into the
Participants account, as necessary, and
3 See Securities Exchange Act Release No. 60083
(June 10, 2009), 74 FR 28739.
4 The Exchange notes that orders rejected in
accordance with this rule will be routed in the same
manner as those rejected under the NMS tradethrough validation rule (Exchange Article 20, Rule
5, Interpretations and Policies .03), which has
already been approved by the Commission.
E:\FR\FM\27JYN1.SGM
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Agencies
[Federal Register Volume 74, Number 142 (Monday, July 27, 2009)]
[Notices]
[Pages 37074-37076]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-17767]
[[Page 37074]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60354; File No. SR-NASDAQ-2009-065]
Self-Regulatory Organizations; the NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change,
as Modified by Amendment Nos. 1 and 2 Thereto, To Modify Routing of
Orders From NASDAQ Options Market to an Affiliate Exchange
July 21, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 29, 2009, The NASDAQ Stock Market LLC (``Nasdaq'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by Nasdaq. On July 17, 2009, Nasdaq filed Amendment
No. 1 to the proposed rule change. On July 17, 2009, Nasdaq filed
Amendment No. 2 to the proposed rule change.\3\ Nasdaq has designated
the proposed rule change as constituting a non-controversial rule
change under Rule 19b-4(f)(6) under the Act,\4\ which renders the
proposal effective upon filing with the Commission. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment Nos. 1 and 2, Nasdaq made minor non-substantive
corrections to the rule text.
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to amend Chapter VI, Sections 1(e)(7) and 11(b) of
the Rules of the NASDAQ Options Market (``NOM'') to modify the
restriction on routing of certain orders to a facility of an exchange
that is an affiliate of NOM.
The text of the proposed rule change is below. Proposed new
language is italicized; proposed deletions are in brackets.
Options Rules
Chapter VI Trading System
* * * * *
Sec. 1 Definitions
The following definitions apply to Chapter VI for the trading of
options listed on NOM.
(a)-(d) No change.
(e) The term ``Order Type'' shall mean the unique processing
prescribed for designated orders that are eligible for entry into the
System, and shall include:
(1)-(6) No change.
(7) ``Exchange Direct Orders'' are orders that are directed to an
exchange other than NOM as directed by the entering party without
checking the NOM book. If unexecuted, the order (or unexecuted portion
thereof) shall be returned to the entering party. This order type may
only be used for orders with time-in-force parameters of IOC.
Directed Orders may not be directed to a facility of an exchange
that is an affiliate of Nasdaq other than the Boston Options Exchange.
(f)-(h) No change.
Sec. 11 Order Routing
(a) No change.
(b) For Non-System securities, the order routing process shall be
available to Participants from 9:30 a.m. Eastern Time until market
close and shall route orders based on the participant's instructions.
Notwithstanding the foregoing, the order routing process will not be
available to route Non-System Securities to a facility of an exchange
that is an affiliate of Nasdaq other than the Boston Options Exchange.
(c)-(e) No change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
a. Background
The NASDAQ OMX Group, Inc. (``NASDAQ OMX''), a Delaware
corporation, acquired the Boston Stock Exchange (``BSE'') in August
2008. Prior to the acquisition, BSE owned a 21.87% interest in Boston
Options Exchange Group, LLC, the operator of the Boston Options
Exchange facility (``BOX''). Boston Options Exchange Regulation, LLC
(``BOXR'') was a wholly-owned subsidiary of BSE, to which BSE was
delegated, pursuant to a delegation plan, certain self-regulatory
responsibilities related to BOX.
In connection with the closing of the acquisition by NASDAQ OMX,
BSE transferred its interest in Boston Options Exchange Group to MX US,
a wholly-owned subsidiary of the Montreal Exchange Inc. NASDAQ OMX
renamed BSE as NASDAQ OMX BX, Inc. (``BX'') and relaunched its equity
trading market as the NASDAQ OMX BX Equities Market in January 2009.
Although BX no longer holds an ownership interest in Boston Options
Exchange Group, it continues to hold self-regulatory obligations with
respect to BOX, a facility of BX. BX, together with BOXR, retains
regulatory control over BOX and BX, as the SRO, remains responsible for
ensuring compliance with the federal securities laws and all applicable
rules and regulations.
NASDAQ OMX also currently indirectly owns NASDAQ Options Services,
LLC (``NOS'' or the ``Routing Facility''), a registered broker-dealer
and a BOX market participant. Thus, NOS is deemed an affiliate of BX,
BOX and BOXR.
b. Affiliation and Order Routing
Nasdaq is proposing that NOS be permitted to route Exchange Direct
Orders in System Securities \5\ to BOX without checking the NOM book
prior to routing. Exchange Direct Orders are orders that route directly
to other options markets on an immediate-or cancel basis without first
checking the NOM book for liquidity.\6\ In addition, the proposed rule
change would permit the routing by NOS of orders (including Exchange
Direct Orders) in Non-System Securities from NOM to BOX.
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\5\ Pursuant to Chapter VI, Section 1(b), ``System Securities''
are all options that are currently trading on NOM pursuant to
Chapter IV of the NOM rules. All other options are ``Non-System
Securities.''
\6\ Chapter VI, Section (1)(e)(7) of the NOM Rules.
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NOS is the approved outbound routing facility of Nasdaq for NOM.
Under NOM Rule Chapter VI, Section 11: (1) NOM routes orders in options
via NOS, which serves as the sole ``Routing Facility'' of NOM; (2) the
sole function of the Routing Facility is to route orders in options to
away markets pursuant to NOM rules, solely on behalf of NOM; (3) NOS is
a member of an unaffiliated self-regulatory organization, which is the
designated examining authority for the broker-dealer; (4) the Routing
Facility is subject to regulation as a facility of Nasdaq, including
the requirement to file proposed rule changes under Section 19 of the
Act; (5) NOM must establish and maintain procedures and
[[Page 37075]]
internal controls reasonably designed to adequately restrict the flow
of confidential and proprietary information between Nasdaq and its
facilities (including the Routing Facility), and any other entity; and
(6) the books, records, premises, officers, directors, agents, and
employees of the Routing Facility, as a facility of Nasdaq, shall be
deemed to be the books, records, premises, officers, directors, agents,
and employees of Nasdaq for purposes of and subject to oversight
pursuant to the Act, and the books and records of the Routing Facility,
as a facility of Nasdaq, shall be subject at all times to inspection
and copying by Nasdaq and the Commission.
The Commission has approved NOS's affiliation with BX subject to
the conditions that: (1) NOS remains a facility of Nasdaq; (2) use of
NOS's routing function by Nasdaq members continues to be optional \7\
and (3) NOS does not provide routing of orders in options from NOM to
BX or any trading facilities thereof, unless such orders first attempt
to access any liquidity on the NOM book.\8\
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\7\ Because only Nasdaq members who are Options Participants may
enter orders into NOM, it also follows that routing by NOS is
available only to Nasdaq members who are Options Participants.
Pursuant to Chapter I, Section 1(a)(40) of the NOM Rules, the term
``Options Participant'' means a firm, or organization that is
registered with Nasdaq for purposes of participating in options
trading on NOM as a ``Nasdaq Options Order Entry Firm'' or ``Nasdaq
Options Market Maker''.
\8\ See Securities Exchange Act Release No. 58324 (August 7,
2008), 73 FR 46936 (August 12, 2008) (SR-BSE-2008-02; SR-BSE-2008-
23; SR-BSE-2008-25; SR-BSECC-2008-01).
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In order to modify the conditions noted above regarding the
operation of NOS and allow NOS to route Exchange Direct Orders directly
to BOX, Nasdaq is proposing to amend the restriction in Chapter VI,
Section (1)(e)(7) of the NOM Rules that prohibit the routing of
Exchange Direct Orders to a facility of an exchange that is an
affiliate of Nasdaq. Under the proposed rule change, an Options
Participant could enter an order into NOM designated as an ``Exchange
Direct Order'' with instructions to route that order directly to BOX
without first checking the NOM book.
In addition, Nasdaq is proposing to amend Chapter VI, Section 11(b)
of the NOM Rules to permit the routing of orders in Non-System
Securities via NOS from NOM to BOX. As a result, orders in Non-System
Securities that are routed to away markets under normal procedures
could be routed to BOX, as well as those that are entered as Exchange
Direct Orders with instructions to route directly to BOX.
Other exchanges previously have adopted rules that permit exchanges
to accept routing of inbound orders from affiliates, subject to certain
limitations and conditions intended to address the Commission's
concerns regarding affiliation.\9\ In the orders approving these rule
changes, the Commission noted its concerns about potential
informational advantages and conflicts of interest between an
exchange's self-regulatory obligations and its commercial interest when
the exchange is affiliated with one of its members, but determined that
the proposed limitations and conditions were sufficient to mitigate its
concerns.
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\9\ See Securities Exchange Act Release Nos. 59153 (December 23,
2008), 73 FR 80485 (December 31, 2008) (SR-NASDAQ-2008-098); 59154
(December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-
48); 59010 (November 24, 2008), 73 FR 73373 (December 2, 2008) (SR-
NYSEArca-2008-130); 58681 (September 29, 2008), 73 FR 58285 (October
6, 2008) (SR-NYSEArca-2008-90); 58680 (September 29, 2008), 73 FR
58283 (October 6, 2008) (SR-NYSE-2008-76); 58673 (September 29,
2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-62)
(collectively, the ``Affiliation Orders'').
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With respect to concerns identified by the Commission regarding the
potential for informational advantages favoring NOS vis-[agrave]-vis
other non-affiliated BOX market participants, these concerns are
addressed by existing NOM Rule Chapter VI, Section 11(e) which requires
NOS to establish and maintain procedures and internal controls
reasonably designed to adequately restrict the flow of confidential and
proprietary information between Nasdaq and its facilities (including
NOS) and any other entity.
In addition, BX is proposing a rule change and certain undertakings
intended to manage the flow of confidential and proprietary information
between NOS and BOX and to minimize potential conflicts of
interest.\10\
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\10\ See SR-BX-2009-35.
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\11\ in general, and with
Section 6(b)(5) of the Act,\12\ in particular, in that the proposal is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. The proposed
rule change would permit routing of Exchange Direct Orders from NOM to
BOX through NOS while minimizing the potential for conflicts of
interest and informational advantages involved where a broker-dealer is
affiliated with an exchange facility to which it is routing orders.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) \14\ thereunder in
that it effects a change that: (i) Does not significantly affect the
protection of investors or the public interest; (ii) does not impose
any significant burden on competition; and (iii) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
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In its recent guidance on the proposed rules of Self-Regulatory
Organizations (``SROs''),\15\ the Commission concluded that filings
based on the rules of another SRO already approved by the Commission
are eligible for immediate effectiveness under Rule 19b-4(f)(6). The
Commission noted that ``a proposed rule change appropriately may be
filed as an immediately effective rule so long as it is based on and
similar to another SRO's rule and each policy issue raised by the
proposed rule (i) has been considered previously by the Commission when
the Commission approved another exchange's rule (that was subject to
notice and comment), and (ii) the rule change resolves such policy
issue in a manner consistent with
[[Page 37076]]
such prior approval.'' \16\ Nasdaq believes the proposed rule change is
``based on and similar to'' the rule changes recently approved in the
Affiliation Orders and furthers efforts to effectively address the
concerns previously identified by the Commission regarding the
potential for conflicts of interest and informational advantages when
an exchange is affiliated with one of its market participants.\17\
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\15\ Securities Exchange Act Release No. 58092 (July 3, 2008),
73 FR 40144 (July 11, 2008).
\16\ Id. at 40149.
\17\ See the Affiliation Orders, supra note 8.
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.\18\
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\18\ For purposes of calculating the 60-day period within which
the Commission may summarily abrogate the proposed rule change under
Section 19(b)(3)(C) of the Act, the Commission considers the period
to commence on July 17, 2009, the date on which Nasdaq submitted
Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2009-065 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2009-065. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room, 100 F Street,
NE., Washington, DC 20549 on official business days between the hours
of 10 a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of Nasdaq. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2009-065 and should
be submitted on or before August 17, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17767 Filed 7-24-09; 8:45 am]
BILLING CODE 8010-01-P